Natural gas flaring, a practice nearly as old as the oil industry, has in recent months put the remote state of North Dakota and its Bakken shale formation on the map, literally. Recently released night-time images from NASA show the sparsely populated region to be awash in light on a scale comparable to much larger metropolitan areas like Chicago. The light pollution, a portion of which can be attributed to related infrastructure, provides a striking visualization of a problem that is largely out of sight and out of mind. The simple truth is that over one-third of natural gas produced in North Dakota is flared or not marketed. Gas flaring is not endemic to the United States, though. Actually, according to World Bank estimates, the US ranks fifth worldwide in the sheer volume of gas it flares behind Russia, Nigeria, Iran, and Iraq. However, the US is one of the fastest growing offenders and the volume of flared gas on US soil has risen three-fold in the last five years. The US shale boom is particularly at fault for the growth in flaring activities and the pursuit by other countries to replicate such success within their own borders could have significant economic, environmental, and social implications.
The root of the problem is such: while natural gas can be found without oil, oil deposits usually contain gas, known as associated gas. This natural phenomenon when combined with the logistical difficulties of storing or transporting gas as well as the vast difference in relative value of the two commodities typically results in the burning, or flaring, of the associated gas. The following numbers from the World Bank help put the problem in perspective. According to their 2012 numbers approximately 140 billion cubic meters of natural gas are flared annually. This figure is equivalent to 23% and 30% of US and EU natural gas consumption respectively. Billions of dollars in potential revenue are being burned annually, not to mention the future costs of trying to reverse the damage. Altogether flaring emits roughly 400 million tons of CO2 into the atmosphere, or 34% of the annual emissions from the US automobile fleet. Another $6 billion is lost in carbon credit value at a rate of $15.00/Metric Tonne.
In 2002, at the World Summit on Sustainable Development, the Global Gas Flaring Reduction public-private partnership was founded as a forum for representatives of governments and state-owned and international oil companies to develop best practices and establish country specific reduction plans. The partnership has proven to be a successful venture and flared volumes have steadily decreased since its inception. However, several factors limit its effectiveness and their demand-pull approach typically results in too much money spent on too few goods. For all of its positives the partnership is simply not able to address the problems that are inherent in each particular government and its relationship with oil and gas producers. Simply put, policy changes must be specifically addressed to reverse the future of associated gas losses.
Let’s briefly examine the situation in Russia; number one in the world in terms of flared volumes, the extent of which is cloudy at best as transparency is minimal. In 2006, the International Energy Agency conducted a cost-effectiveness assessment for a typical oil field in West Siberia. The test compared such best-practices as reinjection, on-site power generation, and pipeline construction. The study determined that approximately 30% of the associated gas could be utilized on-site and in the local communities. Utilization of the remaining 70% would have to be accomplished through alternative methods or be flared. Unfortunately, the government supported monopolies that gas giant Gazprom maintains over the countries pipeline network and exports limit the ability of oil producers to utilize their associated gas volumes. Rosneft, the country’s largest oil producer, acknowledges on their website that both associated and non-associated gas output is only limited by the lack of access to Gazprom’s pipelines and export markets. Beyond these difficulties, Russia lacks the fiscal incentives to meaningfully reduce flaring. While emission fees exist, they have remained stagnant and continue to be far more affordable than the alternative means of utilization.
The case developing in the United States, while nowhere near as dire, nonetheless illustrates the need for adaptive measures and diligent policymakers. High national demand for gas coupled with a well-developed pipeline system has previously allowed the US to attain some of the highest utilization rates worldwide. However, the shale boom has flooded the domestic market with gas and prices have fallen sharply. Permits to flare can be granted on grounds of economic infeasibility and such permit applications have tripled in the last couple of years as even non-associated gas producers struggle to operate at a profit. Keeping everyone, including our planet, in the green will be a key challenge as the shale revolution continues to gain footing around the world.